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European Central Bank Expected To Raise Interest Rates To Slow Inflation In Eurozone

Published: 9th September 2013

The European Central Bank Governing Council Members are expected to raise interest rates in order to curb rising inflation and maintain the banks credibility, and the expectations are that interest rates will be increased by 50 basis points in 2011. Interest rates are currently at 1.25% having recently been increased for the first time since July 2008.

It is a delicate balancing act as the German economy is booming while raising interest rates could exacerbate the debt crisis facing Greece, Portugal and Ireland. However data has showed that inflation rose to 2.7% in March which is the fastest rate since October 2008 and exceeds the banks to percent limit for the fourth month. The central bank previously estimated that inflation would average 2.3% this year, but food and energy prices are continuing to increase.

The IMF has just increased its growth prediction for Europe to 1.6% in 2011 and 1.8% in 2012, and exports from the region rose by 1.6% in February from the previous month. The German economy is particularly robust as factory orders increased by five times as much as economists forecast and the overall view is that economic growth within the region is now increasing and is self-sustained.

The picture isn't quite as rosy for all the countries within the Eurozone, as Greece is still struggling to convince its investors that it will not renege on debts, and this affected the value of the euro versus the dollar. Most analysts think that Portugal will be the last country that will require financial help.

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